Any responsible business owner should consider setting up a Lasting Power of Attorney, or ‘LPA’. In this article, we explain the importance of creating an LPA early on, and the potential issues that could arise by not putting one in place.
What is a Lasting Power of Attorney?
An LPA is a legal document that provides another person, your attorney, with the power to make decisions relating to your personal and business affairs. Should you lose mental capacity or suffer a serious injury to the extent that you are permanently or temporarily incapacitated, an LPA is key to ensuring that someone else can continue to make those important decisions on your behalf.
What does an LPA for a business owner enable?
Under an LPA, you can appoint one or more attorneys to make decisions regarding your business. These can be decisions such as paying your employees, signing contracts for services, or authorising orders. Ultimately, your attorney should be someone that you trust, with a good understanding of your business and who would work well with your partners. In addition, if you appoint more than one attorney it is important to ensure that they all get along and would make decisions that are in your best interests.
You should also ensure that the LPA works in conjunction with your shareholder or partnership agreement, or any articles of association. It is important to note that for companies that have adopted the standard form of articles prescribed by the Companies Act 2006 (known as the Model Articles), a person ceases to be a director as soon as it has been determined that they are physically or mentally incapable of acting as a director and may remain so for more than three months. This means that, if they were the only director in office prior to this, there would be no directors remaining to make decisions. Therefore having an LPA in place is of the utmost importance.
Can you make an LPA covering both your personal and businesses affairs?
Of course, and we would recommend that you document your business and your personal affairs separately. You could effectively make three LPAs; the first in relation to your personal health and welfare, the second in relation to your personal finances and the third in relation to your business affairs. It is the latter that we consider here.
It might be that you appoint the same attorneys to make decisions in relation to all of your affairs. However, it is important to consider the skillset of the attorneys that you appoint. You should ask whether the intended attorney (or attorneys) have the necessary experience to manage a business – would they conduct your business in a way that you would be happy with?
You may also wish to set out certain parameters or instructions in relation to the running of your business, and it makes sense to set these decisions out in a document separate from your own personal affairs.
Why is a Commercial or ‘Business’ LPA important?
Should a business owner lose their capacity and have no one else in place (whether it be a business partner or attorney) to make decisions on their behalf, the business will effectively be ground to a halt. In the absence of an LPA, an application would have to be made to the Court of Protection for a deputy to be appointed to manage the business. This process can take several months during which time the business cannot operate. This will undoubtedly cause severe problems for any business.
How long does a Business LPA last for?
As long as you wish. Once an LPA is registered, it can be revoked by yourself at any time, provided that you have the capacity to do so. It will also cease to operate should you become bankrupt, or when you die.
Should any of your attorneys become incapacitated or made bankrupt, it may also effect the operation of the LPA and you should seek advice on setting it up to ensure that it does not become inoperative in this event.
Making an LPA is obviously an important decision and one that you may wish to seek legal advice on. With offices across the Thames Valley and in London, Gardner Leader are best placed to assist you with your business LPA.